A proposal has been made to set up a Global Fund of risk capital with a budget of 100 million to mobilise private investment in projects promoting energy efficiency and renewable energy in developing countries and emerging economies.

ACT

Communication from the Commission to the Council and the European Parliament of 6 October 2006: "Mobilising public and private finance towards global access to climate-friendly, affordable and secure energy services: The Global Energy Efficiency and Renewable Energy Fund" [COM(2006) 583 final - Not published in the Official Journal].

SUMMARY

The Global Energy Efficiency and Renewable Energy Fund (GEEREF) proposed by the European Commission will help mobilise private investments in energy efficiency and renewable energy projects.

Boosting such projects will substantially contribute towards sustainable development. It will provide benefits in terms of the environment, climate change and air quality and will also have social and economic benefits in terms of business, job and income creation at local level. It will also help to stabilise energy supply in the poorest regions of the world.

Overcoming investment barriers

Boosting renewable energy and energy efficiency technology calls for investment, in particular in developing countries and emerging economies. Although the prospects are promising, several factors block the participation of private-sector investors and projects and businesses have major difficulties in raising risk capital, which provides vital collateral for lenders.

One of the key reasons causing this block to investments is the significantly higher cost of initial investment in renewable energy generation than for conventional energy. While these costs are compensated by much lower running costs, private-sector investors still regard the longer repayment periods as too risky.

The various risks in developing countries are another hurdle, which means that investors look for additional reassurances.

Moreover, renewable energy technologies are often suited to small and medium sized projects with less than 5-10 million in total capital, whilst international finance institutions and the private sector traditionally do not invest in such small-scale projects.

The GEEREF, a public-private partnership.

The GEEREF will establish a public-private partnership by offering ways of risk sharing and co-financing for projects investing in renewable energy and energy efficiency.

It will mainly target the raising of "patient" risk capital, in other words, capital invested with a long-term prospect of return on the investment. GEEREF participation will range from between 25 and 50 % for medium to high-risk operations to 15 % for low-risk operations. Provision will also be made for dedicated technical assistance funds.

Rather than providing finance directly to projects, GEEREF will help create and fund regional sub-funds or scale up similar existing initiatives. Sub-funds will accommodate the specific conditions and needs of each region.

Beneficiaries

The GEEREF will support projects and businesses engaged in improving energy efficiency and renewable energy. Priority will be given to deploying environmentally sound technologies with a proven technical track record. Special focus will be given to investments of less than 10 million since they are often ignored by commercial investors and international financial institutions.

Regional sub-funds will be set up for the African, Caribbean and Pacific (ACP) region, North Africa, non-EU Eastern Europe, Latin America and Asia.

Incentives to support and contribute to the Fund

The minimum funding target for the GEEREF was set at 100 million for it to have a meaningful impact at global level and to be sufficient to establish a public-private partnership that will be self-sustaining over time.

An initial budget of 100 million should be enough to harness additional risk capital, through the sub-fund structure, of 300 million and, in the long term, up to 1 billion.

The European Commission intends to contribute 80 million to the GEEREF for the period 2007-10 with an initial contribution of 15 million proposed for 2007. It hopes that other public and private sources will contribute towards meeting the 100 million target set for the GEEREF.

International financial institutions, such as the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD), private-sector investors and other financial intermediaries have already expressed their intention to contribute to this initiative.

Member States, members of the European Economic Area (EEA) and other financial institutions are also invited to participate.

Background

The constant increase in demand for global energy has serious consequences, in particular in terms of air quality, resources and access to energy. The need to ensure sustainable development requires not only combating climate change but also eradicating energy poverty and securing energy supply. It is therefore essential to harness investments in energy efficiency and renewable energy.